Regina v I R Hall

The Citibank facility. 15 The prospect of selling the Signature Group was no doubt regarded by Clifford Corporation and its directors, including Mr Hall, as an exciting and favourable development. On 19 December 1997, Leisuremark applied to Citibank for a Professional Share Financing Facility in the amount of $1.485 million. Such facilities were available to finance business investments. Mr Hall, Mr Loiterton and Mr Loiterton's son, Peter Loiterton, were the directors of Leisuremark, and a related company, Blenheim Holdings Limited ("Blenheim"). The money provided by Citibank was to be used by Blenheim to exercise options which it held in Clifford Corporation. The arrangement required that Leisuremark would lodge 6.5 million Clifford shares as security with Citibank. Mr Hall and Mr Barrie Loiterton were required to guarantee the loan. Clifford shares were then selling at 47 cents per share, so that almost $3 million was being provided as security. 16 Citibank agreed to make the funds available for a period of six months. The loan document was executed on 19 January 1998. It was a term of the agreement that Citibank could make margin calls on Leisuremark if the value of the security, that is, the Clifford shares, fell below a certain level. The lender fixed what was termed "a maximum financing ratio", that is, a ratio between the loan balance and the value of the marketable security, in this case 60%. Being aware that the market fluctuated, Citibank had what it termed "a buffer zone". It would permit the ratio to rise to 70%, but not beyond. Once it reached 70% it would make a margin call requiring the borrower to take action to restore the financing ratio to 60%. 17 Ms Armstrong, who worked for Citibank, described a further aspect of the arrangement with Mr Hall in these terms: "12. I recall that there was an informal understanding between Citibank and Ian Hall, on behalf of Leisuremark, that there would be a controlled sell down of Clifford shares, independent to the stock secured against the loan. I was not involved in initial discussions about this controlled sell down. I recall that it was not a formal condition of the loan agreement, nor was it specified in the loan documentation. It was certainly an expectation of Citibank that a controlled sell down of Clifford stock would occur during the course of the loan." 18 Mr Basten, Ms Armstrong's supervisor, had the same understanding. This is an aspect upon which Mr Hall placed some emphasis. I will return to it later in these remarks.

The Paris Agreement. 19 The arrangements contemplated by the Preliminary Agreement in relation to the Signature Group, were delayed. The parties met again in Paris in February 1998. 20 On 14 February 1998, they executed a variation to the Preliminary Agreement, which became known as the Paris Agreement. Arguably, it gave rise to no binding obligation since, amongst other things, it included the following term: "(h) The Final Agreement shall be entered within 60 days of the date of this amendment." 21 Nonetheless, the Paris Agreement incorporated the following provisions: · First, IBYO International would bring into existence a US Corporation to be known as IBYO International (Holdings) Inc ("Holdings"). · Secondly, Holdings would then acquire the business of IBYO International for US$45 million payable, as to US$40 million, in shares in Holdings and as to US$5 million in cash. · Thirdly, Holdings would also acquire the business of the Signature Group for US$13 million, payable as to US$10 million in shares in Holdings and as to US$3 million in unsecured notes. There were to be three such notes, each for US$1 million, maturing over three years. · Fourthly, Clifford was to be entitled to certain expenses, as well as "compensation", payable in instalments. The instalments were to be paid between 8 October 1997 (being the date of the Preliminary Agreement) and 30 June 1998 (the projected date of completion). Provision was made that, in the event that instalments were not paid on the due date, the amount may be paid to Clifford in cash or further shares in Holdings. There was no provision for interest on monies unpaid. · Finally, Clifford Corporation guaranteed the projected income of the Signature Group over the next three years, as set out in the original merger proposal, the Information Memorandum. 22 On 4 March 1998, Clifford Corporation made an announcement to the Stock Exchange, releasing preliminary results for the six months ended 31 December 1997. The net profit was $3.6 million. An interim dividend of $1.35 per share was foreshadowed. The projected results included, as income, the expenses and compensation payments contemplated by the Paris Agreement, totalling almost $3.8 million, even though they had not yet been paid. 23 At about this time, Clifford Corporation was in the process of replacing its external auditors. On 11 March 1998, Mr William Chapman, a chartered accountant and partner with Grant Thornton, wrote to Clifford consenting to the appointment of his firm as auditors of that corporation and its associated companies.

Profit announcement June 1998. 24 On 27 May 1998, the Clifford board met with Mr Loiterton as chairman. The board papers included a report from the joint company secretary, Mr Ellis. Mr Ellis forecast a $9.9 million profit for the year ended 30 June 1998. His calculation included an item "IBYO fees" totalling $10.2 million. His forecast profit, therefore, was made up entirely of fees payable upon the completion of the sale of the Signature Group. His report assumed it was appropriate to incorporate such fees into the current financial year. The board accepted Mr Ellis' report. Its resolution included the following words: "... the Board was satisfied that the applicable amounts of money related to the IBYO purchase of Signature group are recoverable and thus able to be treated as a debtor." 25 A further Stock Exchange announcement was made on 2 June 1998. It included the net profits forecast by Mr Ellis. It said this: "4. Net profits will approximate $10.0m in the current year rising to more than $40.0m in 2001 as part of the 3 year development plan being released today."

26 The reference in that paragraph to a three year development plan came from a document which Clifford Corporation released the same day. On 2 June 1998, the Clifford Corporation held "a road show" to which stockbrokers were invited and provided with a document known as "The Three Year Plan". Several hundred people attended. The $40 million forecast was based upon amounts said to be derived from the sale of Signature. 27 On 11 June 1998, the auditors, Messrs Chapman and Archer, met Mr Ian Sapier, a director and joint company secretary of Clifford Corporation. Mr Craig Ellis also attended the meeting. There was a discussion concerning whether it was appropriate to incorporate the fees arising from the IBYO proposal as income in the current financial year. Mr Chapman was told by Mr Ellis that Mr Biber, an in-house counsel of Clifford Corporation, had advised that the Preliminary Agreement was enforceable as a consequence of the Paris Agreement. 28 There followed a number of faxes and letters from the auditors requesting information and material to enable them to complete their audit. 29 Meanwhile, the share price of Clifford shares fell. Whereas shares had been selling for 56 cents in February 1998, by May the share price was 44 cents. The share price rose briefly in June 1998, no doubt in response to the profit announcement of 2 June and the optimism of the road show, before continuing its decline. 30 The falling share price had an impact upon the security arrangements between Citibank and Leisuremark. On 26 June 1998, Citibank wrote to Leisuremark in these terms: (Exhibit 1) "We wish to advise you that your Financing Ratio is at 67.49%." 31 The letter continued: "If you wish to reduce your Financing Ratio to 60%, you can either pledge additional cash or securities, or both. Please be advised that if your account reaches 70%, a margin call will be made. If a margin call is made, you must take action to reduce your financing ratio back to 60%, or less, within 24 hours." 32 This was the first of a series of letters from Citibank to Leisuremark as the share price continued to decline.

Requisitions from the auditors. 33 The external auditors continued their work throughout June 1998. They sought information from the audit committee as to the status of the IBYO settlement. On 9 July 1998, the chairman of Clifford Corporation, Mr Loiterton, sent a memorandum, which was accompanied by a number of annexures. He said that he expected the Settlement Deed would be concluded by 31 August 1998. He added that arrangements would then be made, through agents in the United States, to involve a merchant bank, and for the listing of the shares in the new corporation on the United States Stock Exchange. That was expected to occur by November 1998. 34 The Citibank facility fell due for repayment in July 1998. Leisuremark sought and was given a six month extension from 12 August 1998. 35 On 20 August 1998, the external auditors provided a letter to the chairman of Clifford Corporation setting out a timetable for the completion of the audit for the year ended 30 June 1998. Issues were identified and the information required. On 28 August 1998, Mr Craig Ellis of Clifford provided a letter foreshadowing that the final agreement with IBYO International would be signed within two weeks. 36 The share price, meanwhile, continued to drop. Citibank wrote to Leisuremark on 2 September 1998, drawing attention to the financing ratio which then stood at 66.54%. Meanwhile Mr Chapman, from the auditors, telephoned Mr Loiterton expressing his concern about the audit and the flow of information. Requisitions from the auditors to company officers were sent almost daily, as set out in the statement of Mr Chapman forming part of Exhibit A. 37 On 11 September 1998, Clifford Corporation announced to the Stock Exchange its preliminary final results for year ended 30 June 1998. Whereas it had foreshadowed a $10 million profit on 2 June 1998, based upon funds said to be payable under the arrangement with IBYO International, its profit expectation was revised to $753,000. The announcement included the following words: "The Signature sale, due for settlement in the next quarter, has not been brought to account."

First margin call. 38 The market responded. The share price fell. Whereas the share price for Clifford shares had been 44 cents in July 1998, by early September its shares were selling for 36 cents. By mid September they had dropped to 28 cents. 39 In these circumstances, Citibank made its first margin call. It wrote to Leisuremark requiring it to take action within 24 hours to restore the funding ratio to 60% or less. It reminded Leisuremark that, should it fail to do so, Citibank had the right to sell enough of the shares lodged as security to restore the ratio to that level. Citibank identified the options open to Leisuremark in these words: "To respond to this Margin Call you have the following options: 1. Provide Citibank with additional Acceptable Marketable Securities comprising listed shares to the value of $421,700. 2. Pay cash into your Citibank CSF account to the value of $253,000. 3. Sell part of your CSF portfolio to not less than the value of $632,500." 40 The Citibank loan facility to Leisuremark was being handled by Mr David Jebb of Citibank. He spoke to Mr Hall on 16 September 1998. He made a file note immediately after his conversation. The file note was in these terms: "10.55 am Ian Hall rang. He advised that Clifford Corporation would be making a dividend announcement this afternoon. As a result he has an 'insider trading' concern for which he has requested legal advice. He expects to receive an answer within an hour and would prefer to hold off placing a sell order until then. 11.50 am Ian Hall rang. His legal advice is that he would be open to an 'insider trading' issue if he sold his CCN shares prior to the dividend announcement. The announcement will be made after today's trading closes - he would prefer to sell tomorrow morning if possible." 41 Mr Jebb gave evidence. He said he had a good recollection of the telephone call because it was an important matter. He agreed with Mr Hall, in cross examination, that he had not been definite that he had a problem. According to his recollection, Mr Hall said words to the effect: (T74) "I may have an insider trading exposure here. I may not. I would like to check it." 42 Mr Hall did not dispute that he had such a conversation with Mr Jebb (Submissions para 135). Mr Jebb took the matter up with his supervisor, Mr Basten. Mr Basten agreed to defer the margin call to allow the dividend announcement. Leisuremark was given an extension until the following day. 43 Later, on 16 September, Clifford Corporation published a press release to the Australian Stock Exchange headed: "For release, recommendation of final dividend for period ended 30 June 1998." 44 A dividend was foreshadowed, notwithstanding the revision in the profit forecast announced five days earlier (11 September 1998), down from $10 million to $753,000. 45 On 18 September 1998, Mr Hall again telephoned Mr Jebb. He confirmed that certain shares in Clifford (not being part of the security held by Citibank) had been sold. The balance due would be paid by cheque later that day. According to Mr Jebb, Mr Hall was concerned that Citibank should preserve the marketable security of 6.5 million Clifford shares. Mr Hall wrote to Citibank the same day in these terms: "The company will continue to sell shares on a daily, but controlled basis, independently of the shares you hold for security and in order to fully repay the debt. That instruction has been issued to Potter Warburg Securities Pty Ltd today. The proceeds shall be remitted to you as received in continuing reduction of the debt. You should note that by this method and the payments referred to above the number of shares you hold as security today and to retirement of the debt will remain at 6,500,000." 46 Mr Hall attached some importance to that undertaking and the fact that it predated the information which the auditors provided on 22 October 1998. I will return to this aspect in a moment.

The second margin call. 47 On 2 October 1998, Citibank again wrote to Leisuremark advising that the financing ratio was approaching 70% (67.41%). The slide in share price continued and the ratio was exceeded three days later. On 5 October 1998, Citibank made a second margin call, identifying the following options which Leisuremark had: · "provide additional security of listed shares to the value of $273,700; or · pay cash of $164,200; or · sell part of the facility's portfolio to the value of $413,000." 48 On 7 October 1998, Leisuremark sent a cheque for $164,200 under cover of a letter signed by Mr Hall.

The third margin call. 49 However, the reprieve provided by that payment was short lived. The share price continued to fall. On 8 October 1998, Citibank made a third margin call. On this occasion Lesuremark was given the following options: · "provide additional security of listed shares to the value of $260,000; or · pay cash of $156,000; or · sell part of the facility's portfolio to the value of $390,000." 50 Because the account was clearly in difficulties, Ms Janeen Armstrong and her supervisor, Mr Basten, replaced Mr Jebb in dealing with Leisuremark. Ms Armstrong spoke to Mr Hall. He reaffirmed his commitment to meet the terms of the call. He identified other shares in a company called OAMPS which he could lodge as security to allow an orderly sell down of the portfolio. Mr Hall also foreshadowed a dividend announcement, indicating that the proceeds would be paid directly to Citibank. 51 Negotiations then began with Citibank as to its terms. On 12 October 1998, Citibank wrote to Mr Hall at Leisuremark stating its requirements, which were as follows: · First, a cash injection of $30,000, which Leisuremark duly made. · Secondly, additional security, namely, 2,000,000 OAMPS shares. · Thirdly, the progressive repayment of the loan at the rate of $65,000 per week until 22 January 1999 through the sell down of Clifford Corporation shares. · Fourthly, in the meantime, the transfer of the 6.5 million Clifford Corporation shares, which had been lodged as security, to a Citibank nominee company. The transfer duly occurred on 19 October 1998. 52 Having received the letter, Mr Hall again spoke with Ms Armstrong on 13 October 1998. He said that he would begin the sell down of Clifford shares on 23 October 1998. On 20 October 1998, Citibank confirmed that arrangement in a letter which included the following: "The first pay down on the loan balance for the above account is due on Friday 23rd October 1998. This (as per earlier correspondence) is to be effected by a cash injection or evidence of sale of shares to the value of $65,000 per week. If evidence of pay down is not met by 4pm each Friday, the account will be deemed to be in default and Citibank will have the right to close out the account without notice to the account holder and will commence forced selling of the portfolio." 53 The selection by Mr Hall of 23 October 1998, as the date he would begin selling Clifford shares, was no accident. The settlement with IBYO International had at last been arranged. It would take place on 21 October 1998, which duly occurred. After the settlement, Clifford Corporation made a release to the Stock Exchange, which included these words: (Exhibit D) " SIGNATURE GROUP SALE TO IB YOUR OFFICE CONFIRMED The Directors of Clifford Corporation Limited advise that agreements have been confirmed at USD16.58m (AUD26.3m) for the sale of Signature Group Australia Limited to IB Your Office International Holdings Inc (IBYO), headquartered in San Diego, California, USA. The USD60.0m merged group will operate more than 140 business centres and executive suites in USA, Canada, Europe, Asia and Australia. Settlement is scheduled for February 1999, with a cash payment of AUD13.5m. In addition, Clifford Corporation Limited will maintain an approximate 15% interest in the US based holding company."

The letter from the auditors. 54 This was the context within which Mr Hall received a letter of 22 October 1998 from the auditors, signed by Mr Chapman. The letter was addressed to the directors of Clifford Corporation. Mr Hall was, of course, a director. It was marked "Private and Confidential". It was delivered by courier on Friday 23 October 1998. Mr Ellis, the joint company secretary, explained that it was the invariable practice of Mr Loiterton's secretary, Ms Karen Mackey, to copy important letters, which were immediately provided to Board Members. There can be no question that Mr Hall was given a copy. Amongst the documents ultimately obtained by the prosecution was a copy of this letter annotated with the handwriting of Mr Hall. 55 The letter had, of course, been preceded by many requisitions and discussions with company officers. It related to the group's accounts for the year ended 30 June 1998. It identified 13 matters which were outstanding, which were delaying completion of the audit. It reminded Board Members that time was short, if the annual report, which must include the audited accounts, was to be published on time. 56 The letter referred to an attached appendix. The appendix provided a commentary upon audit issues and the opinion currently held by the auditors on each issue. The letter added these words: "Subject to any new evidence that is offered, unless required adjustments are processed, we will have no alternative but to issue a qualified audit opinion." 57 There followed a section which dealt with possible breaches of the Corporations Law, reminding Board Members that the auditors had an obligation under s311 of the Corporations Act to notify the Australian Securities Commission if, in conducting an audit, it had reasonable grounds to suspect a breach of the law. The possible breaches were identified in the attached appendix. 58 Under the heading, "Action by Directions", the letter drew attention to the obligation under the Australian Stock Exchange Rules in these terms: "We also remind the Directors of their responsibilities under ASX Rule 3.1 which requires that once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entities securities, the entity must immediately tell the ASX that information." 59 The letter urged directors to seek legal advice. 60 The attached appendix ran to 14 pages. It was a detailed commentary upon the affairs of the group. It opened with a concern expressed by the auditors that the group may be insolvent. It said this: (Exhibit C) "1.1 Going concern basis of accounting Observations There are a number of factors that have come to light during the course of our audit that indicate that there is some doubt as to the ability of the Group to continue as a going concern, unless new strategies and financing arrangement are put in place. The factors noted at APG level include: · general ageing of year end creditors, numerous accounts more than 90 days overdue · many suppliers are now cash on delivery · high level of cheques withheld at year end · floor plan facilities up to the limits · legal action taken and threatened in respect of overdue accounts · overdue balances with the Australian Taxation Office, in respect of PAYE and sales taxes · formal guarantees being provided to suppliers by Clifford · gross profit losses being incurred by the core manufacturing business." 61 The letter went on to identify the further information the auditors required before finally forming an opinion. 62 On the subject of dividends, the Board Members were reminded that the company had paid dividends totalling $6.326 million in the year ended 30 June 1998. The final dividend, declared on 16 September 1998, had not been brought to account at 30 June 1998. The liability for the provision of that dividend was therefore understated by $3.908 million. Retained profits and shareholders' funds were overstated by the same amount. One corporation within the group (APG) had incurred a loss. The auditors understood a journal entry had been made for the payment of a dividend to Clifford Corporation. The Corporations Law, however, provided that dividends may only be paid out of profits. 63 Many other issues were raised. The conclusion of the auditors was expressed in these terms: "On the basis of the matters noted in this report, there is a potential overstatement of profit in excess of $15 million. This does not include any other adjustments arising from the outstanding matters noted in our covering letter." 64 The material relied upon by the Crown (Exhibit A) included an expert opinion from a stockbroker, Mr Reginald Keene. Mr Keene has been a stockbroker for over 30 years. He was, at one time, the chairman of the Listing Committee of the Sydney Stock Exchange, and had been a member of that Committee for over 20 years. He had been provided by the Crown with a copy of the Grant Thornton letter of 22 October 1998 and asked to assume that, during the period 23 October 1998 and 6 November 1998, the information was not generally available. 65 Making that assumption, Mr Keene was asked to focus upon two aspects of the letter. The first concerned the conclusion expressed in the letter, "that there was a potential overstatement of profits in excess of $15 million". In respect of that information, Mr Keene formed the view that it: "(a) would be information that, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of CCN (that is, Clifford Corporation) shares; and (b) would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to buy or sell CCN shares." 66 He elaborated, stating his reason in these terms: "(i) The sheer magnitude of the potential overstatement of past profits, in relation to profits declared to the Stock Exchange in immediately preceding years. The 'potential overstatement of profit in excess of $15m' (my emphasis) compares with past CCN reported profits as follows: 1995/6 NPAT (net profit after tax) $3.5m; 1996/7 NPAT (excluding abnormals) $2.3m; 1997/8 NPAT (excluding abnormals) $5m. Even if we include abnormal profits and losses in CCN's results for these three years the combined figure is $17.8m. Hence the Grant Thornton revelation of past profit overstatements suggests the company in essence was at best only marginally profitable in this three year period. (ii) The revelation that past 'profits' were vastly overstated throws into doubt financial figures issued by the company in immediately preceding years. (iii) The dissection by Grant Thornton of the $15m in past overstated profits includes some significant individual overstatements - in particular the 'profit' on the Revesby property sale (Item 1.2); the accounting for the China contract (Item 2.1); and the accounting for Malaysian contract (Item 2.2)." 67 The second aspect of the letter was the suggestion "that there was some doubt as to the ability of the Group to continue as a going concern, unless new strategies and financing arrangements were put in place". Mr Keene, likewise, viewed that information as likely to materially affect the price or value of Clifford shares and influence people to buy or sell such shares. The reasons he provided were as follows: "(i) Given the share price of CCN at the time of the Grant Thornton letter of 22 October 1998, the revelation that there was 'some doubt as to the ability of the Group to continue as a going concern' would have come as a shock to the share market. CCN's share price on 22 October 1998 was 25c last sale, which would suggest that the market did not consider that there was a doubt as to the ability of the Group to survive. Had the market been aware on 22 October 1998 that the company's auditor considered there was a doubt as to the ability of the Group to survive, I consider the share price of CCN would have been significantly lower. (ii) The eight factors listed as contributing to the observation as to the doubts on the 'going concern' aspect of CCN, collectively indicated a material problem within the company's accounting policies, and its possible financial position - a position that clearly was not evident in the market place as evidenced by the company's share price on 22 October 1998." 68 On Monday 26 October 1998, Mr Ellis, the company secretary, spoke to Mr Chapman. He suggested a meeting with the Board the following day. Mr Chapman stated his preference that the meeting take place at once, given the seriousness of the matters raised, and the obligation of the auditors under the Corporations Law. Mr Ellis explained that the Board was meeting that afternoon to discuss the letter. The meeting was therefore fixed for Tuesday 27 October 1998. 69 On 27 October 1998, Mr Chapman was accompanied by Mr Archer, who had been involved in the audit. Both made notes during the course of the meeting. Mr Hall was, of course, present during the meeting, as were other Board Members. The audit issues, canvassed in appendix A to the letter, were discussed. Members of the Board disagreed with some issues and offered to provide further information on others. Mr Chapman said that nothing arising from this discussion caused him to revise the opinion concerning the profit overstatement of $15 million which he had expressed. He agreed, nonetheless, to consider any further information the directors provided.

The sale of shares. 70 Before receipt of the auditors' letter, and no doubt in anticipation of the announcement concerning the IBYO settlement on 21 October 1998, Mr Hall spoke to Mr Michael McCormack, a stockbroker with Merrill Lynch. The conversation took place on 21 October 1998. He asked Mr McCormack to sell 50,000 Clifford Corporation shares. He added that he had "about a million to sell", but that he was using a number of brokers. The market at that time was trading Clifford Corporation shares at 25 or 26 cents a share. 71 Having met with the auditors on the afternoon of Tuesday 27 October 1998, Mr Hall gave instructions to Mr Peter McCormack the next morning. The instructions were to sell 150,000 Clifford Corporation shares. Mr Hall, according to Mr McCormack, was in the habit of giving very precise instructions, identifying the volume to be traded and the price. The sale yielded $37,032.00 paid into the Leisuremark account. 72 The next day, 29 October 1998, Mr Hall met with Ms Armstrong and Mr Basten of Citibank. Ms Armstrong said Mr Hall wanted to tell Citibank some secret information about Clifford. Her recollection of his words were as follows: "Clifford will be announcing a new director to the market shortly. This should have a positive impact on the share price. This information is confidential." 73 Mr Hall explained that Clifford was suffering a funding squeeze. Its financier was charging a high interest rate, but was now in receivership. Arrangements were being made for its replacement. He reaffirmed his commitment to sell down the portfolio. He asked Citibank to waive its requirement that he lodge the OAMPS shares as additional security. 74 Mr Basten's evidence concerning the same meeting was in more or less the same terms. Neither witness was challenged. 75 On the morning of the same day, Thursday 29 October 1998, Mr Hall telephoned another stockbroker, Mr Torgersen. He said he wanted to sell 500,000 Clifford shares on behalf of Leisuremark. He gave instructions that the shares were not to be put on the market all at once. The sale price was to start no lower than 25 cents. Mr Torgersen carried out these instructions over four days between 29 October and 3 November 1998, reporting back to Mr Hall after each sale. On 2 November 1998, Mr Hall instructed Mr Torgersen to sell 70,000 shares at 26 cents or better. Later the same day Mr Torgersen reported back, confirming that the shares had been sold. Mr Hall then gave further instructions to sell the remaining 115,000 shares the following day. Again the proceeds were placed in the Leisuremark account. 76 On Friday 6 November 1998, Mr Hall again spoke to Mr McCormack. He instructed him to sell 200,000 Clifford shares at 26.5 cents per share in two lots of 150,000 and 50,000. Mr McCormack did so that day, sending a cheque to Leisuremark on 13 November 1998. 77 On 11 November 1998, the Stock Exchange suspended trading in Clifford Corporation shares because of its failure to lodge its annual accounts. Attempts to lift that suspension failed. On 9 December 1998, John Star and Ronald Dean-Willcocks were appointed as Joint Voluntary Administrators to Clifford Corporation. 78 As a consequence of Mr Hall's instructions to his stockbrokers between 28 October 1998 and 6 November 1998, 850,000 Clifford Corporation shares were sold, yielding $215,532.58, which was paid into the Leisuremark account. The proceeds were disbursed in various ways, as set out in annexure I to the agreed statement of facts. The sum of $97,796.69 was paid to Citibank. The sum of $22,505.00 was paid to A G Securities Pty Limited, a private company said to be associated with Mr Hall. The balance of the proceeds was used to pay various accounts payable by the group, including the wages of Ms Sonya Norris, the secretary of Mr Hall.

Private companies associated with Mr Hall. 79 I should, in this context, deal with an issue which had some prominence during the sentencing hearing. According to the Crown, it is relevant to the motivation of Mr Hall and the disbursement of proceeds from the share dealings. 80 As mentioned, the proceeds of the share dealings were received by Leisuremark. Leisuremark passed part of the proceeds, $22,505.00, to A G Securities Pty Limited. The Crown asserted that Mr Hall's motive in committing this crime can be discerned from two things. First, he had personally guaranteed (as had Mr Loiterton) the Leisuremark debt to Citibank. To the extent that the debt was reduced, his potential liability under the guarantee was extinguished. Here, almost $98,000.00 of the proceeds were applied to the Citibank debt. 81 Secondly, and in any event, he and his family were shareholders of Leisuremark, which was the direct beneficiary of the proceeds. Further, Mr Hall, according to the Crown, was, either directly or indirectly (through his family) associated with A G Securities Pty Limited, to whom $22,505.00 was disbursed by Leisuremark soon after receipt. 82 Mr Hall did not dispute the guarantee. He simply asserted that, as a matter of inference, it was not his motivation. There had been no call on the guarantee (Submissions p16 (56)). However, that, according to the Crown, was the point. If Leisuremark had defaulted and was otherwise unable to pay, Citibank could have exercised its rights under the guarantee. Mr Hall's actions were, according to the Crown, directed towards ensuring that Leisuremark did not default. 83 Was Mr Hall a shareholder in Leisuremark or associated with A G Securities Pty Limited? The issues are complex. Unravelling that complexity is ultimately not important, in my view, to an understanding of the criminality of Mr Hall. As already mentioned (supra para 10), Mr Hall, as a director of Clifford, made a declaration that he held, directly or indirectly or through an entity related to him, almost 10 million Clifford Corporation shares. Most were held through Leisuremark. Of the 110 shares in Leisuremark, Mr Hall and family members (through a private company) held 30 shares. The private company began its life on 7 June 1988 as Delastar Pty Limited. On 5 July 1995, it changed its name to The Store of Knowledge Pty Limited. There were 61 shares in Delastar (and later The Store of Knowledge). Mr Hall originally held one share and the remaining shares were held by his wife and three daughters. Trust documents were prepared, dated 12 October 1989, at a time when it was contemplated that Mr Hall's wife and daughters would acknowledge that they held their shares in trust for Mr Hall. Although three of the four trust documents were executed, one was not. Mr Hall called his daughter, Kylie Jane Dwyer, as a witness. Mrs Dwyer gave evidence, which was not challenged, that, because they had not been able to procure the signature of the third sister, Mr Hall determined that he would not proceed with the trust arrangements. He ripped up the trust documents in Mrs Dwyer's presence. The shares, according to Mr Hall, were therefore held beneficially by his wife and daughters. He had no interest in them. The company's annual returns (which predated the collapse of Clifford) corroborated that assertion, recording that Mrs Hall and her three daughters held the shares in The Store of Knowledge beneficially. 84 The Store of Knowledge owned 29 of the 30 shares in Leisuremark. That still left one share in Mr Hall's name. Mr Hall tendered a Declaration of Trust, dated 28 March 1995, purporting to declare that he held the shares as trustee for Delastar Pty Limited ACN 076 240 616. The deed was signed by Mr Hall in his personal capacity and on behalf of Delastar Pty Limited below the company seal. 85 However, the company, Delastar Pty Limited ACN 076 240 616, did not exist on 28 March 1995. It came into existence on 4 November 1996, being a private company which adopted the original name of the company which became The Store of Knowledge Pty Limited. Mr Hall, in submissions, acknowledged that the deed had been backdated. The Crown says, and I accept, that the deed was worthless as evidence of the true position in relation to the share held by Mr Hall. 86 I am ultimately concerned with Mr Hall's criminality. In determining that issue, it makes no difference in my view whether Mr Hall held shares personally, or whether they were held by family members. It was clear on the evidence that Mr Hall was the driving force behind The Store of Knowledge Pty Limited. It was a family investment vehicle. His family's interests were his interests. He sought throughout to protect his and his family's interests. I believe, for the same reasons, it is unnecessary to analyse in depth the history of A G Securities Pty Limited. 87 The shareholding of The Store of Knowledge in Leisuremark was plainly a major family asset. Mr Hall recognised that this asset may be jeopardised were there an uncontrolled sell-off of Clifford Corporation shares by Citibank. He sought to prevent that occurring by raising sufficient funds to meet the immediate crisis. He had, I believe, the gambler's optimism that, somehow or other, through short term finance or the share price rallying, Clifford Corporation may survive, and with it, his family wealth, based upon Clifford shares. Whatever his precise motivation, it is plain that he put his and his family's interests ahead of those of the investing public, hoping that something would turn up.

Did Mr Hall know? 88 I then come to the issue whether it can be said, beyond reasonable doubt, that Mr Hall knew that the information provided by the auditors was not generally available, and was price sensitive, such that it was his duty not to trade in Clifford shares. I have no doubt that he did know, and recognised that he should not trade. I have reached that view for a number of reasons: · First, Mr Hall is a mature and intelligent man. He was almost 60 years old when this offence was committed. He had the advantage of a tertiary education. He qualified as a Chemical Engineer in 1966. He received an Associate Diploma of Management in 1970. He spent much of his life in business as a company director. He worked in a number of industries. In 1998, he was the director of a substantial public company and a director of many other companies. He was, until September 1998, the chairman of the audit committee of Clifford. · Secondly, Mr Hall had some experience in trading shares on the Stock Exchange. Mr McCormack from Merrill Lynch said that he had dealt with Mr Hall since April 1998, mainly in the context of Clifford shares. He gave precise instructions as to volume and price. Mr McCormack said he was aware that Mr Hall had access to current share market information. The other broker, Mr Torgersen, said much the same thing. Mr Hall had shown him a computer screen on his desk which provided current share market information. Mr Hall, in response to this evidence, submitted, and I accept, that there was no evidence of share dealing generally with a view to profit. · Thirdly, Mr Hall and Mr Loiterton were the driving force behind Clifford Corporation. I do not doubt that Mr Loiterton was the dominant force. However, Mr Hall played a significant role. Both, through Leisuremark and Blenheim Holdings, were substantial shareholders in Clifford. The course of events during 1998 demonstrated, I believe, a keen awareness on the part of the Board, including Mr Hall, of the power of information to affect share price. The share price had been falling since February 1998. An attempt was made, by the announcement on 2 June 1998, to arrest that decline, first, in foreshadowing a $10 million profit made up of fees yet to be received, and, secondly, by what was termed "the Road Show". The Road Show announced to the stockbroking fraternity, and through them to the market, a three year plan where $40 million in profit were the expected earnings. It is not to the point that these efforts were ultimately unsuccessful and that the share price continued to decline. There is little doubt that the directors, including Mr Hall, were seeking to arrest that decline by providing the market with good news. · Fourthly, the events which followed underlined the importance of information to the market, and the Board's appreciation of the need to provide positive information. On 11 September 1998, the Board faced the inevitable need to revise its profit forecast, after the IBYO agreement had been postponed. Having seen the decline in the share price that followed, it again endeavoured to respond with positive news. On 16 September 1998, the day of the first margin call, the Board made an announcement foreshadowing a dividend. · Fifthly, on 16 September 1998, Citibank made its first margin call. Mr Hall knew of the proposed dividend announcement. He asked that the call be delayed to enable him to seek advice on insider trading. The advice confirmed that he must not trade. Citibank, in the circumstances, agreed to allow an additional day. I believe Mr Hall well understood the prohibition against insider trading. · Sixthly, within a short time, there were two other illustrations of Mr Hall's appreciation of the importance of information to the market. When he spoke to Ms Armstrong of Citibank on 13 October 1998, he sought the postponement of the sale of Clifford shares until 23 October 1998, knowing that the settlement with IBYO was scheduled for 21 October 1998. The sales would therefore take place once the market had received the positive news of that settlement. On 29 October 1998, when Mr Hall saw Ms Armstrong and Mr Basten of Citibank, he said that he had confidential information. Clifford would announce a new director. He expected the announcement would have "a positive impact" on the share price. · Seventhly, as the Crown pointed out in its submissions, it is difficult to imagine more price sensitive information than that which the auditors provided on 22 October 1998. The letter was marked "private and confidential". It was the culmination of work by the auditors over many months. It expressed an opinion, not yet final, that there had been a potential overstatement of profits of $15 million. The auditors were concerned that the company was trading whilst insolvent. 89 The letter was a "bombshell", as Mr Hall and other Board Members would have recognised. It had implications, not only for the share price, but in respect of the attempts by Clifford to replace its financier. I have no doubt that Mr Hall well appreciated the need to keep it secret and the effect it would have, were it to become public. He well understood that the share price would plummet and the Corporation may well collapse were the information to get out. Further, the auditors in the letter reminded directors, including Mr Hall, of the importance of price sensitive information. As mentioned, the letter included these words: "We also remind the Directors of their responsibilities under ASX Rule 3.1 which requires that once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entities securities, the entity must immediately tell the ASX that information." 90 It was said by Mr Hall, in submissions, that he and other directors did not accept the auditor's opinion. Certainly there are expletives on Mr Hall's copy which suggest that, in respect of some items, he emphatically differed from the auditors. But again, that is not the point. Until these differences were resolved and the opinion was revised or withdrawn, the information was explosive, and Mr Hall knew it. Knowing that, he nonetheless traded in Clifford shares. 91 Counsel for Mr Hall said that there was nothing covert in Mr Hall's share dealings and that told strongly against any suggestion that he knowingly breached the law. However, I am not persuaded. Whilst there are cases involving insider trading, where the offender has endeavoured to disguise his dealings, they usually involve the purchase of shares where an anonymous vehicle is used to make the purchase, or the purchase is made through a third party. Here, however, the shares were being sold. They were held by Leisuremark or Blenheim Holdings. It was necessary that someone with authority give the brokers instructions. It would not have been obvious to the brokers that an offence was being committed. When the instructions were given, they did not know the information which had been disclosed to Mr Hall, since it was not generally available. There was no reason for covert action. Had the company somehow survived, the share dealing by Mr Hall may never have become known. The dealings became known because of the collapse. 92 This is not, therefore, a case of negligence, where Mr Hall overlooked his duty. Mr Hall, knowing that he had inside information, that is, information that was not generally available, and knowing that information was price sensitive, deliberately traded shares, when he well knew he should not do so.

Mitigation of the offence. 93 A number of matters have been raised which may arguably be matters in mitigation. The first is that Mr Hall, in January 1998 (when the Citibank facility was executed), had an informal understanding with that company that he would sell Clifford shares, if the need arose, in a controlled way in order to provide the required security. That understanding was reaffirmed on 18 September 1998 after the first margin call. On 12 October 1998, Mr Hall entered an agreement with Citibank for the progressive sale of Clifford shares, commencing on 23 October 1998. On his case, in selling the shares between 28 October and 6 November, he was honouring that undertaking. 94 However, the undertaking was given before the receipt of the auditor's letter. Mr Hall recognised, in the context of the dividend announcement on 16 September 1998, that he could not be obliged to break the law. He sought relief, on that occasion, from the undertaking until the dividend announcement had been made. The undertaking, therefore, is no answer to the obligation under the law. 95 Secondly, it was said that Mr Hall was under intense pressure from Citibank to provide appropriate security. I do not doubt that he was. Whilst that is a circumstance in which the offence was committed, again it is obviously no answer. There was no pressure to breach the law; simply pressure to repay the money. Once Mr Hall recognised that he would need to breach the law in order to meet the demands of Citibank, he was obliged to resist that pressure. 96 Thirdly, it was suggested that if Mr Hall had not sold the Clifford shares, then Citibank would have done so pursuant to its powers under the facility. According to counsel for Mr Hall, the overwhelming probability was that Citibank would have done precisely what Mr Hall did, namely sell Clifford shares. The investing public, therefore, would have been no better off. Knowing that, Mr Hall's criminality must, according to his counsel, surely be reduced. 97 The Crown responded that the rights of Citibank under the facility had no bearing upon the criminality of Mr Hall. Mr Hall, not Citibank, was apprised of the auditor's letter. He was forbidden from selling, not Citibank. According to the Crown, had Leisuremark defaulted on the arrangement made on 12 October 1998, it is a matter of speculation what Citibank may have done. Had it chosen to sell Clifford shares, one imagines that it would have done so in a controlled way. It would have been obliged to sell through its nominee company who, after 19 October 1998, held the shares. No doubt, that fact would have become quickly known to the market. Had the directors of Clifford recognised the need to apprise the Australian Stock Exchange of some or all of the issues arising from the auditor's letter, as the auditors hinted they should, Citibank would have been selling into a very different market. It is, according to the Crown, therefore impossible to speculate about what might have happened. 98 The Crown submitted that Mr Hall was not prepared to take the chance that Citibank may sell the security it held in a way which he regarded as disadvantageous to the share price, and therefore disadvantageous to his and his family's interests. According to the Crown, he quite deliberately chose to put into the market, to an unsuspecting public, at a time and at a price of his choosing, a substantial parcel of shares for a considerable sum of money. Within the space of two weeks those shares were worthless. His action guaranteed a substantial loss to whomsoever, in good faith, bought those shares. It also provided a significant gain to Leisuremark and Citibank, the latter reducing Mr Hall's exposure under the guarantee. 99 I accept the Crown's argument. It is not possible to say where the loss may have fallen had Mr Hall refrained from trading, as he was obliged to do. It may have fallen on Citibank, who could then look to Mr Hall and Mr Loiterton under the guarantees. Instead, as a consequence of Mr allHHaHHHall's actions, the investing public lost more than $200,000.

The subjective case. 100 Let me move from the offence to certain issues which I am obliged to consider under s16A(2) of the Crimes Act 1914 (Cth). I have, in these remarks, already dealt with a number of issues arising under that section relating to the offence. Let me, however, move from the offence to the offender, Mr Hall. 101 Mr Hall is now 66 years old. He has no relevant criminal convictions. Ordinarily that would demonstrate good character, which ought to receive some favourable recognition in sentencing. However, ASIC brought civil penalty proceedings against Mr Hall in 2004. The matter proceeded before Bergin J. Her Honour made a number of declarations that Mr Hall had acted dishonestly in the exercise of his powers and the discharge of his duties as a director of companies in the Clifford group. They are not findings made beyond reasonable doubt. They are not criminal convictions. They are not, for the purposes of sentencing, a matter of aggravation (Weininger v The Queen (2003) 212 CLR 629 at 638). They are, nonetheless, an aspect of Mr Hall's character and antecedents which show that the offence now being dealt with is not an aberration (cf s16A(2)(m)). Even were it the case that Mr Hall had good character, that fact would not be a significant mitigating factor in the context of "white collar" offences such as insider trading (R v El Rashid (unreported, NSW CCA, 7.4.95) per Gleeson CJ). 102 Mr Hall is married. Indeed, he has been married for over 40 years. He has, as mentioned, three daughters, as well as a number of grandchildren. He has retired and is in receipt of a pension. There is no evidence that he suffers from ill health. Nonetheless, were he to receive a custodial sentence, his age may make prison harder for him, and that is a relevant consideration (R v Holyoak (1995) 82 A Crim R 502).

The plea of guilty. 103 Mr Hall pleaded guilty to the offence. Ordinarily, that is a matter taken into account in mitigation, first, because it is usually evidence of some remorse and, secondly, because it spares the community the expense of a trial (Signato v The Queen (1998) 194 CLR 656 at 663-664). Expressed in another way, it demonstrates a willingness to facilitate the course of justice (Cameron v The Queen (2002) 209 CLR 339 at 343). Although the guideline judgment in R v Thomson & Houlton ((2000) 49 NSWLR 383) does not apply to a Commonwealth matter, the analysis undertaken by the Court is relevant when considering the appropriate discount for the plea of guilty (R v Sharma (2002) 130 A Crim R 238). Ordinarily a discount of between 10% and 25% is given for a plea of guilty, the primary determinant being the timing of the plea. That issue is approached in a realistic way, recognising the forensic prejudice that may attach to an offender pleading guilty to some offences in circumstances where he wishes to contest others (R v Atholwood (1999) 109 A Crim R 465, per Ipp J at 468). 104 Here the Crown emphasised the chronology in respect of the plea. On 29 May 2002 and 13 September 2002, the Australian Securities Investment Commission commenced proceedings against Mr Hall in respect of a number of offences. They included six offences of insider trading. There was a contested committal in relation to each matter between 14 July 2003 and 18 July 2003. Mr Hall was committed for trial. On 17 November 2003, he was arraigned in the Supreme Court on an indictment containing, inter alia, a count in respect to the making of a misleading statement to the Australian Stock Exchange and two counts of falsifying company books. Mr Hall pleaded not guilty to each count. The matters were listed for trial. The trial was to commence on 5 July 2004. There was a separate indictment containing six counts of insider trading. The prosecution asked that the second indictment proceed separately after the first trial. 105 On 29 January 2004, Mr Hall sought a stay of proceedings, relying upon R v Dietrich (1992) 177 CLR 292. He had unsuccessfully sought Legal Aid. The application was heard by Davidson AJ and was refused on 29 June 2004. 106 Mr Hall then sought a brief adjournment. He said that he wished to speak to the Crown about the future course of the trial. His trial was put back a week. It was scheduled to commence on 12 July 2004. Mr Hall then made a "charge bargain" proposal to the Crown. His proposal was accepted. On 7 July 2004, a fresh indictment was presented before Davidson AJ. It contained two counts. One count "rolled up" the two previous charges under s1307(1) of the Corporations Act, alleging the falsification of company books. The other charge "rolled up" the six insider trading charges, which then became the six particulars accompanying the charge which is now under consideration. Mr Hall pleaded guilty to both charges. 107 At a later date, as mentioned, Davidson AJ withdrew, being unable to complete the hearing. The matter was listed before me on 15 December 2004 for submissions on sentence. On that occasion, Mr Hall sought leave to withdraw his plea in respect of the counts relating to the falsification of company books. That application was heard in February 2005. Judgement was given on 2 March 2005. Mr Hall was given leave to withdraw his plea in respect of that count. He affirmed his plea in respect of the count concerning insider trading. 108 The Crown, in its submissions, suggested that, so far as the utilitarian value of the plea was concerned (or the facilitation of the course of justice), it should be assessed at the low end of the range. The plea was entered on the eve of the trial. The Crown agreed to a fresh indictment, rolling up the six charges into one. The case, therefore, was quite different, according to the Crown, from Cameron v The Queen (supra) where the Crown, through error, had been forced to withdraw an indictment and present a fresh indictment. Here, Mr Hall, having pleaded guilty, nonetheless put the Crown to proof in respect of the issue of knowledge. That took some time. 109 Leaving that to one side for the moment and dealing with contrition (s16A(2)(f)), the extent to which remorse may be inferred from a plea of guilty will depend in large measure upon the motivation of the person entering the plea. Does the plea reflect genuine remorse, or is it simply a recognition of the inevitable (R v Winchester (1992) 58 A Crim R 345 at 350)? Here, according to the Crown, there was a strong case against Mr Hall. More than that, his refusal to admit knowledge was essentially a denial of responsibility. It demonstrated an absence of remorse. 110 Counsel for Mr Hall responded that the plea of guilty was strong evidence of remorse. The contest on the facts, in the course of the sentencing hearing, was the consequence of the section, which defined the requisite state of mind of the offender in terms of two alternatives ("knew" or "ought to have known"). Mr Hall should not be penalised for having required the Crown to prove that he knew, where he was prepared to acknowledge that he ought to have known. It was not inevitable that the Crown would have succeeded in proving the charge beyond reasonable doubt. 111 I accept that there was real utilitarian value in the plea. Had the matter gone to trial, it would have been relatively lengthy and complex. However, the contested issues of fact on sentence, which have been resolved against Mr Hall, do nonetheless moderate the benefits arising from the plea. Put in another way, the course of the sentencing proceedings reflect the extent to which Mr Hall was prepared to facilitate the course of justice. 112 Turning to contrition, the plea is some evidence of contrition. However, it was, in my view, an overwhelming Crown case. There can be no real remorse without an acceptance of responsibility. Here Mr Hall never accepted responsibility, beyond an acknowledgement of a neglect of duty. He would not acknowledge that he knew that he should not trade. He would have the Court believe that he was so circumscribed in his understanding of his obligations that, when he came into possession of information that can fairly be described as a "bombshell" (in terms of the company's ability to survive), he did not recognise the advantage that gave him, in trading shares, compared to the unsuspecting investing public. I believe, therefore, there is very little contrition. 113 Balancing these considerations, a discount of 15% for the plea of guilty is generous.

Hardship to the offender's family. 114 The Act requires, in s16A(2)(p), that the Court consider the probable effects that any sentence would have upon the offender's family or dependants. The Court of Criminal Appeal has, on a number of occasions, considered the sort of hardship that must be present before it can have an impact upon the sentence imposed. In R v Maslen & Shaw (1995) 79 A Crim R 199, Hunt CJ at CL at 209, stated that the hardship had to be sufficiently extreme, going beyond the sort of hardship which inevitably arises where a family is deprived of the breadwinner. In R v Hinton (2002) 134 A Crim R 286, Howie J (with whom Wood CJ at CL and Sully J agreed) said this: (para 31) "It is now clear that the reference in s16A(2)(p) of the Crimes Act to the 'probable effect that any sentence or order under consideration would have on any of the person's family or dependents' should be read as if it were preceded by the words 'in an exceptional case'; R v Togias [2001] NSWCCA 522 where many of the relevant cases concerned with the effect on a child of a sentence of imprisonment imposed upon the mother are considered in the judgment of Grove J. But each case will, to a very great degree, depend upon its own facts involving an evaluation of the seriousness of the objective circumstances of the offence committed, the extent of the requirement for general and, perhaps, specific deterrence, and the nature and degree of the impact of the sentence upon the third person. It should be emphasised that the question of whether the probable effect of a sentence upon a third party will give rise to an exceptional case, cannot be considered in isolation from the facts of the particular matter and the degree of criminality involved in the offences for which sentence is to be imposed." 115 Although Mr Hall's wife has had serious health problems for a number of years, and would ordinarily look to him for support, it was acknowledged by his counsel that such circumstances could not be described as "exceptional" for the purposes of the principles stated by Howie J.

Other issues. 116 There are a number of other issues which, although not specifically identified in s16A(2), are relevant. There has been delay in the prosecution of Mr Hall. Proceedings were commenced in 2002, some three to four years after the offence had been committed. It then took some years for the matter to work its way through the Courts. Part of the delay, no doubt, was occasioned by the companion action for civil penalties before Bergin J in 2004. Nonetheless, the delay inevitably meant that Mr Hall was left in a state of uncertain suspense for some considerable time (R v Todd (1982) 2 NSWLR 517, per Street CJ at 519). 117 Further, it was suggested that, to some degree, Mr Hall and members of his family had been subjected to the shame and humiliation of publicity arising from these charges, which is a form of extra curial punishment. I accept that both delay and such punishment should be taken into account in the complex synthesis relevant to the ultimate sentence. 118 I should also refer to two other matters which are specifically identified in s16A(2). The Court is enjoined to consider the extent to which the sentence imposed should be directed towards the need for personal deterrence (s16A(2)(j)). There is, as well, an obligation to consider the prospects of rehabilitation (s16A(2)(n)). Mr Hall has retired. He is a man aged 66 years. As a result of the orders made by Bergin J, he has been banned from managing any corporation for 14 years ((2004) 50 ACSR 693). There is no need for personal deterrence. It is unlikely Mr Hall will offend again. His prospects of rehabilitation are excellent.

The appropriate sentence. 119 That brings me to the issue of the appropriate sentence, having regard to these considerations and the obligation under s17A of the Act to consider all alternatives to a custodial sentence, including alternatives that may be available in New South Wales (s20AB of the Act). 120 The maximum penalty for the offence is 5 years imprisonment and/or a fine of $200,000. The maximum is reserved for the worst class case. The offence of Mr Hall cannot be so described, although unquestionably it is serious. 121 Reference has been made by the Crown and counsel for Mr Hall to a number of cases where sentences have been imposed for the offence of insider trading. They include R v Hannes (2002) 173 FLR 1; R v Rivkin (2004) 59 NSWLR 284; R v Doff [2005] NSWCCA 119; and R v Frawley [2005] NSWSC 585. The cases are important for the statements of principle that they include. Each emphasised the seriousness of the offence. In R v Rivkin [2003] NSWSC 447, Whealy J, who was the sentencing Judge, helpfully summarised the general principles in these terms: (para 44) "1. The element of general deterrence is important in white collar crimes. It is of course, an important part of the sentencing process in all crimes. It is however, an especially important matter in crimes such as the present because of the need to mark out plainly to others who might be minded to breach their professional or related obligations that such conduct will generally merit, in appropriate cases, condign punishment. 2. An important reason why this is so, relates to the often remarked difficulty in detecting and investigating white collar crime. Insider trading is particularly hard to detect. It may often go unnoticed but where it occurs it has the capacity to undermine to a serious degree the integrity of the market in public securities. It has the additional capacity to diminish public confidence not only so far as investors are concerned but the general public as well. ... 3. It is especially important that the sentencing process provide a firm disincentive to the carrying out of illegal activities especially by those who are engaged in the securities industry. There is a need to sound, in effect, a clarion call to discourage illegal and unethical behaviour among company directors, company officers, brokers, traders, advisors and those who have a close connection through, for example, merchant banking, to the stock market. (See Regina v Pantano (1990) A Crim R 328 at 380)" 122 In R v Doff (supra) the Court (Wood CJ at CL, Adams and Bell JJ) said this: (para 56) "... We do not ... suggest that anything other than a stern approach should be taken to offences of insider trading for the reasons earlier identified. It remains a serious offence, and there needs to be a considerable deterrent aspect reflected in order to protect the integrity and efficacy of the market. Those in a position of trust who receive price sensitive information in relation to securities are expected to conform to exacting standards of honesty, and transgression can normally be expected to lead to custodial sentences as well as to pecuniary penalties." 123 However, beyond these statements of principle, the cases are of limited assistance, except perhaps collectively in giving some indication of the sentencing range. In R v Rivkin (supra), Wood CJ at CL said this: (para 415) "It is not, however, the case that much benefit is ever gained by an attempt to draw a comparison with other sentences, having regard to the differences in the objective and subjective circumstances involved, and to the need for any such exercise to assume that the other decisions were correct, or are such as to provide effective guidance for later cases: R v Morgan (1993) 70 A Crim R 368; R v Salameh (NSW CCA, 9 June 1994) and R v Ellis (1993) 68 A Crim R 449." 124 Here, the Crown submits, and I accept, that the criminality on the part of Mr Hall was very significant. In many cases of insider trading, the offender seeks to profit from information that comes into his possession. Ordinarily, in such cases, the profit is confiscated once the crime has been detected. Such cases involve no monetary loss to an individual. There is, nonetheless, damage to the investing public's confidence in the integrity of the market. Such damage is serious enough. Here, it was worse. Here it can be inferred that, in addition, many people or institutions who bought shares in Clifford from Leisuremark in good faith lost their money (s16A(2)(e)). Some 850,000 shares, yielding over $215,000, were sold on the instructions of Mr Hall, those instructions being given on six separate occasions. Mr Hall was a mature businessman. He was an experienced company director. He held a position of trust within Clifford Corporation. He had experience in share dealing, although he could not be described as an expert share trader. 125 In my view, no punishment other than a custodial sentence would be appropriate. The appropriate sentence, before the discount for having pleaded guilty, is two years and six months imprisonment. Allowing a discount of a little over 15% for the plea of guilty, the head sentence reduces to two years and one month. In accordance with s19AC(1) of the Act, it is necessary that I make a recognisance release order. Ordinarily the period served would be 60% of the term imposed. I believe, however, that because of the delay, and Mr Hall's age, a lesser period is appropriate, namely one year. 126 Ian Robert Hall, I sentence you to a term of imprisonment of two years and one month commencing on 9 September 2005 and ending on 8 October 2007. I make an order that you be released on 8 September 2006 upon your giving security, yourself, in the sum of $5,000, without surety, by recognisance that you will be of good behaviour during the balance of your term. 127 Mr Hall, under the Act, I am obliged to explain to you the effect of that order. The sentence I have imposed will mean that you will be obliged to spend one year in custody. You will be released on 8 September 2006 upon entering a recognisance to be of good behaviour, without lodging cash security. That recognisance will continue until 8 October 2007. **********

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